DCR or debt coverage ratio, is one if not the most important thing to factor when it comes to commercial financing. However, it is one of the most overlooked aspects so I thought I would touch upon it’s importance here.
Last month, I closed on a very difficult commercial deal – a 12-plex in Orlando, FL. When looking at it initially the numbers looked strong and keep in mind at first glance they always will as they are put together by the realtor to get it sold. It is not until I as the broker or the lender do further due diligence with proper numbers, backed up by P/L and rent rolls, that the true numbers come out in the wash.
Many investors have been looking at their current residential portfolio’s and not liking what they are seeing. For instance, the recent rule changes have affected their ability to grow their single-family portfolio’s with CMHC no longer insuring these properties, which means less lenders to choose from. Furthermore, after the recent rate hikes and more to come, cash flows have also been affected.